Season Investments


Anger Drives out Reason

Posted on July 9, 2019

“I think we’ve just started with what capitalism can produce in the United States, but I do think it obviously needs certain rules and regulations.”  – Warren Buffett

2019-07-09_fist.jpgThe topic of debating the merits and pitfalls of capitalism versus socialism has continued to gain traction over the past decade as more and more people are “feeling left behind” by the current system. A couple months back Warren Buffett, Charlie Munger, and Bill Gates did an interview with CNBC on the topic of capitalism versus socialism. You might think that three rich white guys who all benefited from the current system would sing the praises of capitalism while warning of the evils of socialism, and although there were aspects of this sentiment in the video (“If you love your post office, you’re going to love socialized medicine.” – Charlie Munger), by and large, they (mainly Buffett) did an excellent job explaining the need for both systems in a well-functioning economy.

For those that don’t have the time to watch the video, here were some of my key takeaways:

  • The prosperity we and other developed countries around the world enjoy today is mainly attributed to our current system of government and business.
  • Capitalism is an extraordinarily effective way of using resources to produce goods and services in the most efficient way possible.
  • Government needs to play a role in reallocating some resources and keeping markets in check.
  • The function of government is not necessarily to get bigger but to take care of people who get left behind by the market system.

Another interesting takeaway from the video is that many people who are talking about socialism, including some prominent Democratic presidential nominees, are not necessarily using the term in the same way it has been used in the past. In the video, Bill Gates mentions that the word socialism used to refer to the state owning the means of production, but the debate being had today is more about wealth redistribution and the frustration between the haves and the have nots.

No modern developed economy is either purely capitalist or purely socialist as they all are a blend of private and public ownership of production. Even though many people in the US view our country as being “capitalist” while other developed countries in Europe are “socialist,” the fact of the matter is that we all lie somewhere on the spectrum between the two extremes. In fact, no developed country in existence today would even be considered predominantly socialist as they all function from a capitalistic framework (private ownership of production) with varying degrees of socialist intervention. Most economists would agree that the rise of capitalism has led to a significant increase in people’s prosperity and living standards.

As such, I’m going to postulate that those on the pro-socialism side of the debate don’t really want a central governing body to own all the means of production, but rather are simply expressing their frustration about income and wealth inequality.

"The market system is brutal and it leaves behind people who are perfectly wonderful people." – Warren Buffett

No system is perfect and our current one definitely has room for improvement. The problem is we all can’t put down our pitchforks long enough to make it better. One side of the isle villainizes wealth and the 1% while the other likes to talk about how any form of wealth redistribution is corrupt and evil. As is typically the case when talking about extremes, the truth lies somewhere in the middle. It is possible to have a capitalistic system which maximizes human ingenuity while at the same time operating within a construct that makes sure that perfectly wonderful people aren’t left behind. As Charlie Munger stated in the video, “Anger drives out reason,” and unfortunately our political climate these days has too much of the former without enough of the latter.

elliott_headshot_bw.jpgAuthor Elliott Orsillo, CFA is a founding member of Season Investments and serves on the investment committee overseeing the management of client assets. He spent nearly ten years as a financial analyst and portfolio manager working primarily with institutional clients prior to co-founding Season Investments. Elliott earned a bachelor's degree in Engineering from Oral Roberts University and a master's degree from Stanford University in Management Science & Engineering with an emphasis in Finance. Elliott and his wife Gigi have three children and like to spend their time outdoors enjoying everything the great state of Colorado has to offer.

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